The 2016 Elections | Impact on the Work of Charitable Nonprofits

The November 8 elections produced some distinct surprises while also continuing numerous trends seen in recent years across the states. Early pronouncements from incoming and re-elected office holders suggest that policy decisions will be not only top-down from the federal government, but also bottom-up from localities and spread horizontally from one state to others.

Actions by Congress on issues like healthcare, such as altering the Affordable Care Act, will directly affect state finances – and impact the work of nonprofits beyond just those providing healthcare. State and local ballot measures on minimum wage and other policies will put pressure on Congress and other states to adjust employment laws– and affect the work of nonprofits as employers. The spread of trifecta government at the state level – as in one party controlling the governorship and majorities in both the state House and Senate – may escalate a trend among states to adopt austerity budgets and tax plans that undermine their long-term fiscal stability.

Some might see these and other changes in the policy ecosystem in which nonprofits operate as a three-dimensional chess board involving interactions between the federal, state, and local levels of government. But in fact, it is even more complex. The actions and reactions are equally dynamic among the three branches of government as judges, legislative bodies, and executives and administrative agencies exercise their separate authority and judgment. However viewed, the work of charitable nonprofits will be affected – positively and negatively – by changes in the policy ecosystem.

How these policy changes affect the ability of charitable nonprofits to advance their missions will depend on the two similarly separate yet interlocked ecosystems of the 501(c)(3) community. Charitable nonprofits must rally together to engage in advocacy at all levels and branches of government to ensure that elected officials understand the impact of policy proposals on the people and communities the politicians and their local nonprofits both serve. Also, the foundation community must make serious investments in charitable nonprofits to do that all-important advocacy work – especially at the state level that is the nexus to all policy action – to protect the work of foundations and nonprofits alike.

The following analyses of the 2016 election results at the federal level, state level, and ballot measures will be updated as more information becomes available:

Making Sense of the 2016 Federal Elections

The election of Donald J. Trump as the 45th president can be cast as a repudiation of “the establishment” – including both the Democratic and Republican parties. For the first time in American history, the party taking control of the White House actually lost seats in the U.S. House and Senate, suggesting that past actions and conventional wisdom may be of little guide in predicting and planning for federal policies. With that caveat in mind, readers are invited to consider what is known about key policy issues affecting the work of charitable nonprofits, gleaned from candidate Trump’s pronouncements and existing Congressional policy positions, particularly as announced by House Republicans.

Supreme Court: Once inaugurated on January 20, President Trump will be able immediately to nominate a Justice to fill the seat of Antonin Scalia who died last February. Considering that the average age on the Court is 69 years old, Trump may also have the opportunity to appoint two or more other Justices during his tenure. Scholars are predicting that his nominees, if confirmed by the Senate, are likely to create a Court more receptive to challenges to abortion rights, class-action lawsuits, environmental regulations, property use, and other issues. More immediately, the Trump administration will have the opportunity to alter the Obama administration’s position on a number of pending cases, including the case accepted for review in October concerning a school’s obligation to accommodate transgender students.

Executive Orders and Regulatory Reform: The Trump Transition office has announced that the incoming administration plans to pursue regulatory reform, including canceling several executive orders, issuing a temporary moratorium on all new regulation, and conducting “a thorough review to identify and eliminate unnecessary regulations that kill jobs and bloat government.” Likely Executive Orders facing harsh scrutiny relate to the status of immigrants, protections for gender identity, and numerous mandates on government contractors. The regulatory review effort may mirror the red-tape review process established by New Jersey Governor and Transition Office vice chair Chris Christie, a process that has resulted in significant cost savings for both nonprofits and state agencies over the past five years. See, e.g., testimony of the Center for Non-Profits, the state association of nonprofits in New Jersey. Regulatory review processes are common exercises initiated by new administrations at the federal and state levels, as reflected by the Grace Commission Reports in the first Reagan term, the Clinton-era National Partnership for Reinventing Government, and numerous government-nonprofit task forces in the states.

Spending Priorities: Early statements from the Trump Transition office suggest that the President-Elect is interested in increasing defense spending to levels that exceed the agreed-upon spending caps enacted last year and subject to the Budget Control Act of 2011. As written, that law imposes automatic spending cuts in equal measure to defense programs and non-mandatory domestic spending programs (that typically fund services provided by nonprofits on behalf of governments), an automatic process known as “sequestration.” Calls to increase defense spending, but not domestic, suggest that more money for defense could be paid for through more severe cuts to programs serving human needs. This could create a double hit to nonprofit service providers: reducing financial support for work in communities while driving individuals losing those services to turn to other nonprofits under the presumption that nonprofits and foundations will somehow, yet again, “pick up the slack.”

Tax Reform: The Trump tax plan, which the transition team summarizes as “lower, simpler, fairer, and pro-growth,” calls for repealing the estate tax and capping itemized deductions at $100,000 for individuals and $200,000 for couples. The latter proposal, according to one analysis, would cause charitable giving to decline by between 4.5 percent and 9 percent, or as much as $26.1 billion per year. In potential contrast, Speaker Ryan’s tax blueprint “encourages charitable giving through a tax incentive” and tasks the House tax committee with developing “options to ensure the tax code continues to encourage donations, while simplifying compliance and record-keeping and making the tax benefit effective and efficient.” On the campaign trail, Mr. Trump also criticized nonprofit colleges and universities for amassing large endowments while increasing tuition costs, vowing to work with Congress to alter tax breaks or federal payments if institutions do not make good faith efforts to reduce costs for students.

Nonprofit Electioneering Ban: Candidate Trump and his 2016 Party Platform called for repeal of the so-called “Johnson Amendment,” the federal tax law ban on 501(c)(3) charitable nonprofits and private foundations engaging in partisan election-related activities. It is unclear whether this would be attempted through tax reform, some other legislation, or non-enforcement by a Trump Internal Revenue Service. The National Council of Nonprofits and many organizations have long recognized that 501(c)(3) nonprofits enjoy more power and independence to solve community problems by steering clear of partisanship. The current law, for instance, protects 501(c)(3) nonprofits from requests by political candidates to divert nonprofit resources away from their missions to instead fill partisan campaign war chests — which on the for-profit side can lead to “pay to play” to win government contracts. If individual organizations came to be regarded as Democratic charities or Republican charities instead of the nonpartisan problem solvers that they are, it would diminish the public’s overall trust in the sector and thus limit the effectiveness of the nonprofit community. Read more at The Power of Nonpartisanship, a blog posting from the National Council of Nonprofits stressing the legal right, power, and breadth of election activities in which nonprofits can engage, as long as they always remain nonpartisan.

Health Care Reform: The incoming administration promises to repeal and replace the Affordable Care Act (“Obamacare”). One potential detail, proposed this summer by House Speaker Paul Ryan (R-WI), calls for changing the Medicaid health care program for low-income and disabled individuals by providing states with a choice of either per capita allotments or block grants. This approach appears to conflict with repeated statements by candidate Trump that he would not touch these entitlement programs. However a new federal system is devised, it is clear that governors and state legislators will have to adjust current state programs, financing, and other health care and bureaucratic infrastructure to accommodate federal actions. All of these changes could impose new burdens on nonprofits at the state-level advocacy arena to protect individuals, and at the local level to deliver services, healthcare and otherwise, as the system is disrupted.

State and Local Election Results

It is hard to argue that the repudiation of the establishment seen on Election Day in the presidential race played out with equal force at the state and local levels. Voters re-elected incumbents to state legislatures at potentially record levels. Six legislative chambers flipped control from one party to the other, three from Democratic to Republican control, and three switched from Republican to Democratic control. Legislative chambers in a few other states are in transition as some elected officials change party allegiances and special elections are made necessary by politicians taking other positions in government.

The elections continued the spread of Republican majorities in statehouses and governorships, with Republican trifectas now controlling governments in 25 states, compared to only six Democratic state trifectas. Policies generated in the states – the “laboratories of democracy” – are likely to influence federal legislation and rulemaking just as certainly as congressional and federal administrative actions will change debates in the states.

Multiple states are already experiencing revenue shortfalls in their current fiscal years and even more anticipate dealing with budget deficits in their next fiscal year. The responses to these challenges can directly affect the finances and sustainability of charitable nonprofits. Early in 2016, for instance, Louisiana sought to close a dire budget deficit by imposing sales taxes on many nonprofits during a special session. The new taxes were ultimately repealed during the regular session, but the relationship between nonprofits and governments was changed when the legislature required affected nonprofits to make annual disclosures on the value of the sales tax exemption. Further sale-tax reforms are under active consideration in the state for 2017.

States facing revenue challenges frequently cut the level of revenue sharing provided to local governments, which then often increase pressure on nonprofits to make payments to government coffers or take on more work that municipalities walk away from. Nonprofits can anticipate increases to the already numerous challenges at the state and local levels as policymakers try to fill their budget holes by seeking to impose new taxes and fees, and demand payments in lieu of taxes (PILOTs) from charitable nonprofits.

Special Focus: Experience in the States on Caps to Charitable Giving Incentives

The Trump Tax Plan provision that calls for placing a cap on itemized deductions, including charitable donations, is raising concerns among foundations, donors, and charitable nonprofits that such a proposal would discourage contributions to the work of organizations in local communities. Similar proposals at the federal level have never gained much traction in Congress, but the experience in the states over the past five years shows that caps are frequently proposed by politicians seeking to increase spending or reduce taxes.

In 2011, policymakers in Hawai`i sought to fill a budget deficit by capping the state’s charitable giving incentive and all other itemized deductions. In Michigan that year, the Governor successfully championed a bill to repeal the Michigan Credit for Charitable Gifts – tax credits that supported the work of homeless shelters, food banks, community foundations, and many other Michigan nonprofits – in order to fund business tax breaks. In both cases, researchers documented significant reductions in charitable giving.

The adverse impact in Hawai`i was so distinct that the Governor joined with nonprofits in working to remove the cap on charitable giving in 2013. Also that year, legislative efforts to cap itemized and charitable deductions were proposed, but opposed by nonprofit advocates and eventually defeated in Oregon and Vermont. In Kansas and North Carolina, legislators initially proposed capping all deductions, but following intense advocacy by nonprofits legislators expressly carved out the giving incentive from a cap on other itemized deductions. Minnesota considered, but rejected the idea of switching from a charitable deduction to a tax credit. See this recap of the action in 2013.

The effort to cap itemized deductions returned in 2015 in numerous states, most notably in Vermont and North Carolina. In both states, nonprofits utilized data developed from the earlier challenges in Hawai`i and Michigan to persuade policymakers that placing a cap on charitable giving incentives creates significant negative consequences for communities and the people served by nonprofits.

Regardless whether Congress takes action in the next two years on comprehensive tax reform, state legislators and governors have already expressed interest in renewing the tax debate at the state level. To date, nonprofit advocacy efforts have been unified and largely effective in demonstrating the value of current giving incentives.

State Ballot Measure Results

Voters across the country gave their support on Election Day to issues that have seen little action in the U.S. Congress, and the results were far more progressive than the candidates they elected. As a result of the voting, for instance, the minimum wage hourly rate is going up in four states: Arizona, Colorado, Maine, and Washington State, as well as in numerous communities. Arizona's Proposition 206, which passed with nearly 60 percent of the vote, begins phasing in a higher rate on January 1, 2017, and also guarantees 40 hours of annual paid sick leave to employees of businesses with 15 or more employees.

Voters also expressed support for campaign finance reforms. Four separate ballot measures asked the electorate to set the rules on campaign contribution limits and address whether to restrict the U.S. Supreme Court's Citizens United v. Federal Election Commission decision. In that case, the Court held that political contributions and spending must be treated as constitutionally protected free speech. California's Proposition 59 and Washington State's Initiative 735, both of which passed, urge their respective state's congressional delegations or state's elected officials to use their authority to overturn or repudiate Citizens United, potentially through an amendment to the U.S. Constitution. Missouri, the only state without any limits on campaign donations, voted to re-impose limits on campaign contributions that had been abolished in 2008. South Dakotans approved a ballot measure that extensively revised campaign finance laws by, among other things, lowering contribution amounts to political action committees, political parties, and candidates for statewide, legislative, or county office, and setting up a voluntary publicly financed campaign system.